Motorola sees chip, phone weakness

MikeTarsala

SCHAUMBURG, Ill. (CBS.MW) -- On the heels of a tepid fourth-quarter earnings report, Motorola said Thursday it expects continued weakness in several of its key markets in the first half of 2001.

In a conference call with analysts, Motorola executives painted a picture of slowing growth at home and abroad and said they don't expect business to accelerate until the second half of the year.

The cell phone and chip company now predicts flat sales of $8.8 billion and earnings per share of 12 cents in the first quarter. Motorola declined to give a full-year estimate, saying that the slowing economy makes such a prediction difficult.

Motorola said it expects industry sales of wireless phones to reach 525 million to 575 million this year, up from 410 million phones in 2000. But the company now says the industry will probably end the year at the low end of that range. Stiff competition, particularly in the low-end cell phone market, will continue to exert pressure on sales and profit margins, executives said.

"We do not expect to see significant improvements in the next three to six months," said Mike Zafirovski, president of Motorola's personal communications division.

Global growth in the semiconductor industry, meanwhile, is now expected to grow 10 percent to 15 percent in 2001, down from estimates of as high as 25 percent. Motorola said the industry has to work through its excess inventory.

Shares of Motorola
MSI, -1.20%
rose 94 cents to close at $22.13 on the Big Board.

Earnings fall

On Wednesday, Motorola reported falling profit in its two largest business categories, while overall revenue came in short of its already lowered fourth-quarter goals.

To be sure, Motorola made its bottom-line earnings number. The company reported net income of $335 million, or 15 cents a share, compared with $564 million, or 25 cents a share in the year-ago quarter. That matched the expectations of analysts surveyed by First Call.

In light of the company's earnings and revenue warning in December, the results are far lower than the company's initial earnings expectation of 23 cents a share.

Meanwhile, revenue was $10.1 billion compared with $9.1 billion during the year ago quarter. That fell just short of the post-warning First Call revenue expectation of $10.2 billion.

But operating profit from the company's personal communications division dropped 69 percent to $76 million, down from $242 million in the year-ago period. Sales in the company's bread-and-butter business rose 1 percent to $3.5 billion.

Losing market share

At issue is that Motorola is losing share in a mobile phone market -- the company's largest -- that's growing slower than expected. Meanwhile, competitors including Nokia and Siemens are believed to have taking a bigger slice of the available market.

Motorola's telecom solutions segment -- its second-largest segment, declined 21 percent to $193 million, down from $245 million in the year-ago quarter. That's despite sales that rose 19 percent to $2.1 billion, and order growth of 5 percent to $1.8 billion.

"Despite the higher sales, increases in manufacturing costs and operating expenses caused operating profits to decline," said Robert Growney, chief operating officer, in a statement. "We have taken steps to reduce the cost structure in our manufacturing activities and to tightly control operating expenses"

The company reported a pre-tax net charge of $68 million, or 9 cents a share after-tax. The charge was mainly from the discontinuation of older, less lucrative wireless products. The charge is expected to help the company's wireless business going forward.

Further steps will be taken in 2001, Growney said.

As expected, sales from Motorola's semiconductor business declined 19 percent to $1.6 billion. Orders were down in all regions, Motorola said. While orders increased in some key chip niches including networking and computing markets, the company reported significantly lower wireless sales.

One positive is that operating profit from Motorola's semiconductor segment rose nearly twofold to $158 million, up from $80 million in the year-ago period.

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